Technology Investment Framework Categories

Technology investments vary depending on the type of organization. From a framework perspective, the investments will inevitably fall into one of three categories:

Sustaining

These investments keep your company moving. They include investing in infrastructure—such as communications technologies (email, phone), office space, and physical infrastructure—financial management and control, and human resources.

Disruptive

These investments are designed to build and grow your business. This might include developing new product ideas, building new features for existing products, or expanding existing products into new and interesting markets.

Performance

These investments are designed to make your business more efficient and productive. This might involve investing in marketing and sales, making reductions in cost of goods sold (COGS) or infrastructure costs, and optimizing processes and systems.

Often, companies’ investment priorities shift depending on the organization’s maturity and the business climate they are facing. In fact, a successful company understands where it is investing and updates its investments as necessary as time goes on.

Companies need to put money and effort into all of these categories, but they should focus on the things of greater importance. For example, consider your corporate email system. Companies invest in building this communications channel to facilitate communications among their employees, and between their employees and customers, partners, and other third parties. It’s a necessary infrastructure component for a modern company to have.

But how much should you invest in the email system? Should you hire a large team of email experts to build the greatest email system ever? Or should you pay a few dollars per employee and give everyone a Gmail account? Or should the investment be somewhere in the middle?

To answer that question, I’d suggest simply considering this fundamental question: are you in the email business?

If your business is not the business of building and operating high-quality email services, why would you invest heavily in a state-of-the-art email system? Why not just pay the going rate for an existing email service, such as Office 365 or Google Corporate Mail, and let that company manage your email for you?

Just how important is email to you? Is it more important than your product offering, or a critical component of your product offering? Or is it just a tool for communicating between people involved in your business?

For example, are you a retail company like Dollar General that uses email to send company information to your employees and communicate with vendors? Or are you an email delivery service company like Mailchimp, where customers pay you to process their email for them?

In other words, what is your main business focus? Your answer dramatically impacts how much you should invest in email services—or any other services—for your company.

Let’s discuss a few specific examples where considering the actual focus of your business can impact the type of IT investments your company makes.

IT Investment Example: Are You in the Datacenter Business?

Joe’s Hardware Store is a (fictitious) national chain of hardware stores famous for their customer service. You can buy a product at any Joe’s Hardware Store and return it at any other Joe’s nationwide. If one store doesn’t have a product, they can quickly get it from another store and have it available for the customer to pick up within 24 hours. Joe’s guarantees these capabilities by having a single, unified IT backend. This backend connects all the stores in the Joe’s Hardware network using a common inventory, order processing, and customer service system. Additionally, customers can go online to get a copy of a receipt, check the status of a special order, or check on a pending service order. This is all enabled by the unified IT backend infrastructure.

Joe’s manages the backend infrastructure via a datacenter located in downtown Prescott, a small town in western Wisconsin. The company chose this location because it was the childhood home of the CEO. However, it’s 50 miles from any major population center, so getting people to work at the datacenter is difficult. Combined with fluctuating power availability, weather-related outages, and inaccessibility during major blizzards, it’s hardly an ideal location for a datacenter, and Joe’s wants to make a change.

But a change to what? What if it finds a new location for the datacenter, and moves all the people and equipment there, only to find out that it’s hard to run a datacenter at any location? That doesn’t seem to make sense.

So Joe’s Hardware asks itself: “Are we in the datacenter business?”

In other words, is operating a datacenter important to the business that Joe’s Hardware is in—namely, selling hardware—or is it a necessary but secondary part of doing business as a hardware store? Joe’s decides that, while having a datacenter is critical to conducting its business in the way it does, maintaining and operating that datacenter is not mission-critical for the company’s success. Anyone could operate the datacenter for Joe’s. And by outsourcing the job of running the datacenter, Joe’s will be able to focus more on the parts of the business that are mission-critical.

So Joe’s Hardware Store decides to close the Prescott datacenter and relocate all the services to a cloud service provider. This lets an expert in running a datacenter—a cloud service provider—handle the logistics and issues associated with operating the datacenter, and it lets Joe’s Hardware deal with what it needs to do: sell hardware.

This story illustrates the importance of focus. By outsourcing the sustaining parts of its business model (operating the datacenter) to a third party, Joe’s is able to focus more on the disruptive parts of its business model (selling hardware and providing the nationwide customer support the company is famous for). The company will still have to invest in the datacenter via cloud usage fees, but it doesn’t have to focus on operating the datacenter. This reduction in cognitive load—and hence, IT complexity—helps Joe’s Hardware remain competitive in its core, much more strategic initiatives.

Most companies don’t have to be in the datacenter business. For some companies, though, operating datacenters is core to their business. Take, for example, Amazon Web Services. AWS has become very proficient at building and operating datacenters. This is because the company needs to operate hundreds of thousands of them worldwide in order to manage its growing cloud service business.

A company’s focus may also change over time. Dropbox is a company that initially outsourced its datacenter needs to a third party—it was an early user of Amazon S3, and it used AWS for all its IT needs. But as the company grew, and its competitive offerings grew to match, Dropbox discovered that to remain competitive it needed to provide more efficient data storage optimized for its needs, and hence, it needed to build its own datacenters. Dropbox now operates much of its infrastructure and data storage in its own datacenters, rather than using a cloud provider’s generic storage solution. As the company matured, it discovered that operating a datacenter was in fact a strategic necessity for it to remain competitive.

The lesson of this example? Focus on the things that are strategically important to your business, and outsource those things that, while necessary, are not essential to your business’s success.

IT Investment Example: Should You Be in the Logistics Business?

Amazon.com is a bookstore. At least that’s what people called it when it launched in 1994. Even as late as 2005, when I joined Amazon, I remember a taxi driver asking me if that was “the bookstore up on the hill.”¹

Amazon quickly grew into a retail powerhouse, an ecommerce juggernaut. It sold products of all kinds, then shipped them to customers. For some time, Amazon was one of the largest users of UPS, FedEx, and the US Postal Service’s shipping services.

Shipping costs were always a challenge for Amazon. The company worked hard to keep costs down and negotiated aggressive shipping agreements with all the major shipping companies.

But then a question came up. Why aren’t we in the logistics and shipping business ourselves?

At first glance, you might say that Amazon is a retail store and shouldn’t be involved in shipping—it should outsource that to the people who understand shipping. Yet, shipping is such a critical part of the business that outsourcing it would mean outsourcing a significant amount of control over the business as a whole.

So Amazon decided it needed to get into the logistics business, and built a giant logistics organization within the company. It bought freight airplanes and long-haul trucks, invested in growing its number of fulfillment centers, and eventually invested in a fleet of last-mile delivery vehicles and infrastructure. Now, many products you buy on Amazon are shipped—at least partially—through the Amazon logistics system. In some cases, the products are shipped and delivered all the way to your door by an Amazon carrier. Amazon is now a major player in shipping logistics, and this has opened up new avenues of business. It has also allowed the company greater control over shipping speed, delivery routing, and cost containment. Amazon is one of the best shipping companies in the world, yet that wasn’t its initial core business. It made an investment to solve a critical business problem, and as a result, a new arm of the business was formed.

Amazon even invests extensively in the way logistics are handled. Amazon Air is starting trials of drone delivery of packages to individuals’ front doors, dramatically altering the package delivery model. It is disrupting the logistics business.

Should Amazon be a logistics company? Most definitely, and it may end up being one of the best logistics companies around. While perhaps not obvious at first glance, this is a critical part of the company’s core business: bringing products purchased on the internet directly to consumers.

The lesson of this example? Sometimes strategic necessity gives rise to new business opportunities and new opportunities to disrupt the status quo, leading to more new opportunities. Just because a capability wasn’t strategic to you initially, doesn’t mean it might not be sometime in the future.

IT Investment Example: How Can You Leverage Strength to Transform?

Uber started out as a modern alternative to the traditional paid car service and taxi service. By leveraging technology, it was able to provide car services at a rate substantially lower than its competitors, and with a greater degree of convenience.

This was a good business model, and Uber was an effective disruptor to those old-school transportation businesses. In fact, it was so successful that Uber became a generic term for getting a ride from one location to another: “Let’s grab an Uber” is now more commonly heard than “Let’s grab a taxi.” Faced with this new competition, traditional car and taxi services struggled to survive. Many did not, but others did by adopting features of Uber’s business model. Additionally, newcomers such as Lyft appeared and started competing with Uber on pricing, causing Uber to have to either adjust its business model or face being disrupted itself.

Despite these challenges, Uber built a solid business consisting of a huge worldwide network of independent drivers who owned and operated their own vehicles. Uber provided the logistics infrastructure that connected riders to drivers, as well as safety, security, and payment capabilities.

But Uber faced a problem when it came to expansion. You can expand a business like Uber’s only so much. There are only so many new markets to enter, and only so many ways that people can use your service to get around town.

Then Uber realized that the network it had developed might be useful for a purpose other than driving people to and from various locations. It could also move things from one location to another location, on demand, quickly and easily. While this capability could be used for simple package delivery services, Uber had something bigger in mind. What about food? In a big city, timely delivery of food for lunches and dinners was always a struggle. A single restaurant could handle only a certain number of drivers and a certain number of orders in a very restricted delivery region, and the few restaurants that banded together and formed larger delivery services didn’t have a lot of success. Outside of pizza delivery, it was hard to get good, consistent, reliable delivery of hot food from restaurants to homes and offices.

With its large worldwide fleet of vehicles and drivers, Uber had an opportunity to solve this problem. It could use its fleet to pick up food from restaurants and deliver it to customers, nearly as easily as picking up a rider and moving them to another location. And so Uber Eats was born. Again, this model was so successful that other companies started to offer similar services, and it got a boost when the global pandemic hit: Uber Eats and its competitors had huge success delivering meals from suddenly-takeout-only restaurants to suddenly-stuck-at-home diners.

Uber innovated by finding a new business to disrupt—one radically different from its original business. Before Uber, who would have imagined that the airport limousine and fast-food delivery businesses had so much in common?

Shifting Investments

As discussed in Chapter 1, excessive IT complexity can prevent an organization from shifting from, say, a sustaining or performance investment toward a disruptive investment due to competitive pressures. Remember the example of Xerox? Or a company might think it is investing in disruptive technologies, but find it’s more invested in sustaining—keeping the wheels turning but not moving forward—as was the case with Hewlett-Packard. Or it might have successfully invested in disruptive technologies in the past, but be unable to find solid disruptive options for future investments and slip into irrelevance, as happened with Polaroid and Blockbuster Video. It might even simply shift its investments too late to be effective, losing an insurmountable amount of market share to innovative competitors, as in the case of Borders.

Whatever your situation, understanding how and where your business is investing will help you understand its driving force, which will help you assess your situation and understand the changes required in order to reduce complexity, increase agility, become more adaptive, and safely manage information. Based on this, you can determine a strategy to become more competitive and, hence, successful in your business domain.

In his book Zone to Win (Diversion Books), Geoffrey Moore suggests segmenting enterprises into four zones to enable them to more easily move from one business model to another using disruptive innovations. Moore’s four zones are:

The performance zone

This part of the enterprise focuses on its existing business, optimizing it and maximizing its return.

The productivity zone

This part of the enterprise comprises the cost centers that enable the performance zone to succeed. Its focus is on efficiency, effectiveness, and compliance.

The incubation zone

This part of the enterprise focuses on experimenting to discover disruptive innovations. It is separate and isolated from all other parts of the business.

The transformation zone

This part of the enterprise focuses on enabling transformational initiatives to succeed.

The Zone to Win model describes these four zones and how companies can shift their focus between them at various points in their development, to alternatively enable or transform their business in order to stay competitive.

Summary

The investment framework your company uses will either enable the business or work against it. Your goal is to focus as much investment as possible on the business enablers, and as little as possible on the things that are not strategic to the operation of the business. Focusing your technology investments effectively is imperative: this will help reduce the cognitive load, technical debt, and business complexity of your applications, which in turn enables the innovation and agility that are necessary to thrive.